Investing.com -- Jefferies downgraded ArcelorMittal (AS:MT) to Hold from Buy and maintained its price target of €33 on expectations of a period of share price consolidation after a strong rally.

ArcelorMittal shares have risen 32% year-to-date, outperforming the broader European steel sector and U.S. steel peers.

However, Jefferies expects the rally to pause as uncertainty around the company’s exposure to Mexico and Canada remains.

While ArcelorMittal has benefited from a recovery in steel prices and improved margins, visible pricing and demand growth in the European market are needed to justify further upgrades.

“We expect a period of share price consolidation near term, as Mexico&Canada uncertainty remains,” Jefferies said, adding that EU mid-term steel prospects remain more attractive but require sustained price increases to drive further momentum.

Jefferies highlighted that ArcelorMittal’s strategic projects could contribute $0.4 billion in EBITDA in 2025 and $0.6 billion annually in 2026-27, supporting higher free cash flow and capital returns.

However, with the stock now trading at 4.2x EV/EBITDA (above its 5-year average of 3.9x), the upside appears limited unless steel prices rise further.

Investor speculation has increased about ArcelorMittal potentially acquiring the remaining 72% stake in VK, which has net cash and exposure to the U.S. Oil Country Tubular Goods (OCTG) market. Jefferies sees a cash acquisition, with an estimated 7% EPS accretion, as more favorable than an equity-based transaction.

ArcelorMittal’s operations in Canada and Mexico contribute less than 20% of EBITDA, but U.S. tariffs create potential risks. Jefferies estimated that the impact from tariffs could be around $0.4 billion, or 5% of EBITDA, based on past tariff scenarios.

Jefferies believes that while the long-term outlook remains positive, near-term uncertainties warrant a more cautious stance on the stock.

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